The European Commission has rolled out its first “omnibus” package aimed at streamlining the EU’s sustainable finance framework, including changes to the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD), the EU taxonomy, and the Carbon Border Adjustment Mechanism (CBAM). The proposed reforms are intended to reduce regulatory burdens on businesses, though critics argue they may create more challenges than they resolve.
In a bid to enhance Europe’s competitiveness and ease the reporting obligations, the Commission’s proposals seek to simplify the current sustainable finance landscape. Valdis Dombrovskis, the European Commission’s executive vice-president, reiterated the EU’s commitment to a greener and fairer society while advocating for less cumbersome, smarter regulations to foster innovation and long-term prosperity.
Streamlined Reporting Requirements for Large Companies
A key element of the proposed changes is a reduction in the scope of the CSRD, which would now apply only to large companies with over 1,000 employees, excluding around 80% of businesses. The double materiality principle, however, will remain intact. Reporting requirements would also be postponed by two years for companies that would have been required to report starting in 2026 or 2027, with new deadlines set for 2028. Small and medium-sized enterprises (SMEs) would no longer face compulsory reporting obligations and could choose the level of data they provide.
Additionally, the Commission proposes measures to ease auditing costs and introduces a revised version of the European Sustainability Reporting Standards (ESRS), which supports the CSRD.
CSDDD: Focus Narrowed to Direct Partners
While the CSDDD’s scope remains unchanged, the focus will now shift to direct business partners instead of entire supply chains. Monitoring requirements will also be less frequent, moving from annual to a five-year interval. The Commission has extended the deadline for member states to transpose the law by an additional year, with the legislation now set to apply in July 2028, and fully in effect by July 2029.
The proposal removes EU-wide civil liability and repeals the previous financial penalty cap of 5% of a company’s turnover, which had sparked anxiety within the industry. The Commission claims the adjustments will result in substantial savings, with large companies projected to save €60 million in one-off costs and €320 million annually.
Taxonomy Adjustments: Simplification in Reporting
The EU taxonomy will also see significant changes. The reporting obligations would be limited to the largest companies, and a new financial materiality threshold for taxonomy reporting would be introduced. The “do no significant harm” principle, particularly for the chemicals sector, would be simplified, and banks and insurance companies would benefit from an adjusted green asset ratio.
CBAM: Reducing Administrative Burdens
The CBAM, designed to impose a carbon tax on imports, will see exemptions for small importers, although the Commission insists that 99% of emissions will still be covered. According to the Commission, 90% of importers will be relieved from CBAM obligations.
The Commission has branded this package as a “stop the clock” proposal, urging swift approval from co-legislators, member states, and the European Parliament. The anticipated result is an estimated €6.3 billion in annual administrative cost savings and a potential increase in public and private investment capacity of €5 billion.
Mixed Reactions from Stakeholders
While the Commission emphasizes that the proposals will reduce red tape and promote competitiveness, not all stakeholders are convinced. Critics warn that the changes may create legal uncertainty and hinder access to essential sustainability data. Aleksandra Palinska, executive director of the European Sustainable Investment Forum, cautioned that the alterations could undermine the consistency and comparability of sustainability reports, which are crucial for investors aiming to scale up green investments.
Richard Howitt, former MEP and independent adviser, expressed concerns that the simplification efforts might inadvertently weaken sustainability requirements, leaving European businesses more vulnerable to international competitors, particularly in the context of the global energy transition.
However, some business representatives view the changes as a positive step. BusinessEurope hailed the proposal as a significant milestone for improving Europe’s business environment, while Eurochambres president Vladimír Dlouhý described it as “a small step in the right direction.” Legal and corporate experts, including Michael Littenberg from Ropes & Gray, welcomed the postponement of deadlines and the scaling back of risk assessment requirements as a relief for companies facing regulatory burdens.
A Controversial Shift
Despite the Commission’s optimism, the proposed changes have sparked frustration among environmental groups and campaigners who see the revisions as a setback for sustainability goals. Critics argue that the proposed simplification risks undermining efforts to promote transparency and accountability among businesses, particularly in relation to human rights and environmental impacts.
Mariana Ferreira from WWF warned that the EU’s proposed changes could create a “disastrous lack of ESG data,” leaving responsible investors and consumers without the information needed to make informed decisions.
In contrast, some industry experts, like Chris Shaw from Anthesis, argue that while the principles behind ESG regulations, such as the CSRD and CSDDD, are solid, businesses should continue adhering to sustainability frameworks regardless of regulatory changes. As the debate over Europe’s sustainable finance future continues, the Commission’s proposed reforms will undoubtedly have far-reaching implications for businesses, investors, and the green transition itself.
The Road Ahead
While the Commission’s proposals aim to foster competitiveness and reduce administrative costs, the broader implications of these changes on sustainability reporting and long-term business practices remain uncertain. The final outcome will depend on political negotiations, as well as how businesses and governments navigate the evolving landscape of global sustainability regulations.
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